New Home Construction Takes a Hit

Approvals for the construction of new homes tumbled in September, but economists say the disappointing result is probably just a blip on the radar.

Building approvals fell a whopping 11 per cent in the month and were down 13 per cent for the year, figures from the Australian Bureau of Statistics on Monday show.

Just 15,000 new homes were approved for construction in September, compared with almost 17,000 in the previous month.

But although the figures were significantly weaker than expected, economists say the data aren't as bad as they look.

Most of the fall came from the high-density dwellings category, (apartments, townhouses) which fell 22 per cent, but that category is typically volatile and subject to large swings either way.

Meanwhile, approvals for private sector houses, which are more important to economic growth because they create more jobs, fell just 2.3 per cent.

"If you're looking for the good news, it's that the bulk of the weakness was in the high-density component," JP Morgan economist Tom Kennedy said.

"We think it's more or less an aberration and we think we'll see it bounce back in the next few months.

"It's not a good number but it's probably not as alarming as the headline would suggest."

CommSec chief economist Craig James said that if you look through the volatility created by high-density homes, the trend for building approvals is positive.

"The old adage is 'the trend is your friend' - and that clearly rings true when it comes to assessing the state of new building activity," he said.

"Overall, new council approvals to build new homes are going sideways, but at historically-high levels."

Mr James said it was encouraging that the housing market was stabilising after a series of strong results.

If approvals kept rising strongly, we could end up with an oversupply, he said.

ANZ economists said although building approvals had hit a 13-month low, low interest rates, rising house prices and solid property investor demand would continue to support a "solid cyclical upturn in housing construction".

"Despite the modest loss of momentum, building approvals remain at elevated levels, supporting a solid pipeline of planned housing construction, particularly for high-rise apartments in Sydney, Melbourne and Brisbane," ANZ economists said in a note.

"This is likely to support dwelling investment and economic activity for some time yet."